New analysis from Papers in Regional Science reviewed the possible implications of the UK’s exit from the European Union.
And while remainers suggested Britain’s departure would see the UK come crashing out of Brussels with horrific consequences, it seems this may not quite be the case.
Economists say they have now found estimates of the potential loss of GDP or gross domestic product by the Treasury are likely to have been “too pessimistic” over Brexit.
Major forecasting models including the Treasury, the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) agreed the result of leaving the EU would lead to “a substantial loss of income for the UK.”
But report co-author Professor John McCombie, of the University of Cambridge believes the models’ warnings were overblown.
Prof McCombie and research fellow Marta Spreafico, of the Catholic University of the Sacred Heart, Milan said: “We shall argue that the impact of Brexit on the UK, and hence its regions, may not be as damaging as some of the forecasts above suggest.
“We shall concentrate particularly on the Treasury as this was most influential in the referendum debate. It also produces similar results to the IMF and OECD studies.”
The potential loss of GDP in 2030, compared with the position if the UK had not left the EU, calculated by the Treasury ranged from central estimates of 3.8 per cent to 7.5 per cent, depending upon the outcome of any new trade agreements negotiated with the EU.
At present, UK exports to the EU account for 45 per cent of the UK’s total exports and for 12 per cent of the UK’s GDP.
But despite their comments on Project Fear, the researchers also said they are concerned the vote to leave the EU may actually worsen the North-South divide “to some degree” – and the UK already has a larger degree of regional inequality than any other major OECD country.
Prof McCombie and Ms Spreafico said: “The UK is entering uncharted waters.
“Whatever the actual size of adverse effects of Brexit to the UK economy, it is almost inevitable that Brexit will worsen regional disparities and this points to the urgent need for the spatial rebalancing of the UK economy.
“The current regional imbalance in the UK, as reflected by the North-South divide, is one of the largest in Europe.
“An important question, consequently, is whether or not Brexit will significantly worsen the North-South divide.
“Thus, even if the short term and the long term consequences of Brexit have been overestimated by the Treasury, Brexit could have serious adverse effects for the UK regions and cities, exacerbating the North-South divide.”
“Those regions which are more heavily dependent on trade with the EU will experience the greatest adverse effects.
“In the case of the UK as a whole, Brexit will cause a short run one off loss in GDP, and possibly to a decline in its long term growth rate.”